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Chapter 27 : Economic Issues - Coggle Diagram
Chapter 27 : Economic Issues
Main stages of the business cycle
Growth
GDP rise
employment rise
price level rise
Boom
too much spending
inflation takes place
shortages of skilled labour supply
costs of production rise
future is uncertain
Recession
too little spending
GDP falls
fall in demand and profit
workers may be made redundant (cyclical unemployment)
Slump
longed recession
high level of unemployment
prices fall (to boost demand)
business may fail
Impact on businesses of changes in employment levels, inflation and GDP
changes in level of employment :
unemployment goes up, more supply of labour
ability of business to recruit new employees
customers may become unemployed, less willing to purchase from the business, sales fall
business that sell cheaper products or relatively inelastic products may be less affected
inflation
:
business costs may increase
prices of products also increase, fall in sales
effect depend on what the business sells
GDP
:
economy growing --> increase in GDP
increasing sales
more jobs, more income, more ability to buy
may be harder to recruit labour
Government economic objectives
low inflation :
prices rise slowly
if rapid inflation :
real incomes fall
demand for higher wages
prices of goods and services will be higher inside the country than outside; may encourage import
business unlikely to expand and create more jobs
standard of living falls
low unemployment :
increase output (GDP)
improve the standard of living
if no economic growth
:red_cross:
output falls, fewer labour needed, unemployment rises
average standard of living falls
expansion of business may not be common as there may be short of finance
balance of payments
exports must be balance with imports
difference between exports and imports are balance of payments
payment deficit (imports > exports) :red_cross:
country can run out of foreign currencies and need to borrow
exchange rate may fall (exchange rate depreciation)
Government economic policies
fiscal policy
: taxes and government spending
direct taxes :
income tax - may result in less sales if high
profits tax or corporate tax
indirect tax :
VAT
import tariffs - may have more sales if high
changes in government spending to fund :
education
health
defense
law and order
transport - roads and railways
monetary policy - interest rates
:
may have to pay more interest
borrowing money for expansion may be delayed
relatively elastic PED businesses may suffer from falling sales as people don't want to borrow money
exchange rate appreciation
supply side policies
privatisation
improve training and education
increase competition in all industries